Normative Narratives


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Save the EU, (So it Can Help) Save the World

Two Birds, One Stone

The first round of the French Presidential Election saw anti-EU Marine Le Pen advance to the second round runoff. Her defeat there is not the foregone conclusion many think it is–we have all seen this movie before.

Regardless of the outcome of the election or any future “Frexit” vote, European geography won’t change; Russia will still be an aggressor, and the Middle East will remain a volatile neighboring region. Countries on the European continent need a viable joint security plan. For countries that remain in the EU, a new economic plan is needed to stop these exit movements from gaining popular support.

Three interconnected problems seriously undermine the future of the EU–economic, security, and cultural. Economic contraction from the Great Recession / European Debt Crisis, met with austerity policies, has led to high unemployment and stretched social services. A weak military (partially caused by austerity but primarily the result of historic over-reliance on the US) has left Europe unable to act decisively on regional security issues, resulting in an influx of refugees. The arrival of refugees coincided with an increase in terrorist attacks and exacerbated economic insecurity, fueling strong anti-refugee sentiments across the continent. Given the long-term inability of mainstream politicians to remedy these problems, it is not surprising that once fringe populists offering simple solutions have emerged as a real threat to the future of the EU.

One would think the success of anti-EU movements would prompt a strong response from the block. Unfortunately, it seems like business as usual in Brussels. EU negotiators just demanded a huge 3.5% primary surplus of Greece for an indefinite period of time in exchange for bailout funds, even as it grapples with 23.5% unemployment (almost 50% for young people).

The solution to these interconnected problems, although not pretty, is clear–exempt defense and security spending increases from Greece’s budget surplus target. In general, exempt defense and security spending increases from EU budget rules. These rules are often disregarded anyways, but bailout countries like Greece do not have this flexibility. The result is the poorest countries are forced to accept the most growth-constricting policies.

For Euro countries, make cheap ECB funds available to finance such spending. Security provides a common benefit, so its only fair that the costs be reduced by the common strength of the European economy.

The old saying “war is a rich man’s game but a poor mans fight” is an unfortunate economic reality. US servicemen and women come primarily from lower income families, and this plan would appeal most to the poorest Europeans. But there are, however, benefits to both society and individuals to having stronger armies in the EU. A stronger force can act as a deterrent, discouraging bad actors from, well, acting badly. When preventative peacebuilding, diplomacy, and deterrence fail, a strong army can act decisively in a “just war”. The economic benefits realized by military families are real, and can contribute to economic growth and opportunity.

It is not my intention to glorify war, there are many downsides to it; using force should always be the last option, but for global powers it must be an option. I also want to be very clear, this is not a call for conscription. Those who do not wish to serve in their country’s armed or homeland security forces will of course be free to pursue other options.

Not Ideal, But a Chance to be Real

Ideally, fiscally conservative EU countries would just allow poorer countries to engage in stimulus spending attuned to their specific needs. But almost 10 years after the Great Recession, there is little reason to believe this is the case. In fact, Greece’s recent bailout terms are evidence to the contrary.

Ideally, EU defense and security spending would align with the risks facing its members. But despite terrorist attacks at home, Russian aggression at it’s doorstep, and regional instability in the neighboring Middle East, only marginal steps have been taken on this front.

Eventually “ideally” no longer works. Within the complex bureaucratic framework of the EU, pursuing the ideal has resulted in inaction, which has proven to be the worst course of action of them all. Everything is pointing towards inadequate defense and security spending by EU countries. Europe’s security blanket (the U.S.) is now taking a harder line on defense contributions. It is past time for EU leaders to act decisively before the block becomes irreversibly damaged.

As with any major program there are many specifics to be worked out. For instance, how to maximize the resources that go to “labor” (troops, homeland security forces, intelligence officials) as opposed to large “capital” items (aerial bombers and drones for example), without compromising the objective of improved military and security capabilities.

The proposed solution is a just starting point. But it is the starting point for an idea that can solve multiple problems, and should have support from a wide range of politicians–anti-austerity liberals, populists, and neoconservatives. It is also a relatively simple solution itself, so it should play well with blue-collar voters who are fed up with ineffective technocratic solutions.

I am not calling for a global military buildup. Increased military spending by the EU should be met with decreasing military spending in the US. As I have consistently said, Trump’s pressure on EU countries to increase defense spending has been a rare positive for his administration, but would be a wasted opportunity if coupled with the huge increase in defense spending in his proposed budget.

 


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The Democratic Costs of a “Grexit”

To Grexit, or not to Grexit?

Greece’s negotiations with its creditors have not gone smoothly.  The Greek government treated an interim deal reached in February as a starting point for negotiations, while it’s creditors considered it more of an non-negotiable outline of a deal. The result has been two sides talking past each other; the longer this situation persists, the more likely a “Grexit”–Greece leaving the Eurozone and / or EU–becomes.

There is a ton of middle ground for the two sides–both want Greece to return to growth and full employment. The Greek government also wants a safety-net for people negatively affected by labor market and other structural reforms; pushing already impoverished people further into poverty is not only morally reprehensible, it is bad economics.

To prevent this result, Greece has passed an “anti-poverty law” to protect its most vulnerable citizens. The problem is financing this program; the Greek government needs room to implement needed structural reforms without further destabilizing Greek society.

In addition to staving off a humanitarian crisis, Greece also needs a long-term growth strategy beyond structural reforms. There are few options for the Greek government:

1) It can completely comply with creditor demands.

2) It can continue to push its lenders for more fiscal space (smaller primary surplus and / or promises of greater EU level aid / debt relief).

Or,

3) It can default on its debts and exit the Eurozone.

The first option is a non-starter, as the Greek government feels current demands would exacerbate social and economic hardship in Greece.

The second option would allow Greece to leverage more public money for safety net programs, educational and workforce training programs, and public private partnerships. This would allow Greece to avoiding default while mapping out a plan to boost economic growth.

The last option would be painful in the short-run as Greece would get battered by financial markets and possibly have to deal with currency instability as it reintroduced the drachma(?), but it would open policy space and make Greece much more competitive in terms of cost of doing business. A Grexit could also lead to a domino effect–if other ailing E.U. countries see a post-E.U. Greece succeeding, it would bolster anti-E.U. parties within these countries.

It is obvious that the second choice is in everyone’s best interests. Unfortunately, that is no guarantee this route will be taken:

Herman van Rompuy [former head of the European Council of EU leaders] told a Brussels conference that if Greece were to leave the euro zone, that would also have geopolitical repercussions in the current standoff with Russiaover Ukraine, emboldening Moscow to see Europe as weak.

Van Rompuy urged all sides to consider the political and geopolitical implications of such a step and not just the economic and financial arguments.

“I hope we will never have to answer the Grexit question,” he added

Greece staying in the E.U. is important for both sides of the negotiation. There are enough crises in the world without manufacturing one in Greece. It is exactly times like these when budgetary restrictions should be relaxed in the name of pragmatic, longer-term priorities. But so far Greece and it’s lenders have been unable to map out a solution that worksall parties involved, and so the current impasse and possibility of an “accidental Grexit” persists.

Greece did submit a new proposal to it’s creditors yesterday, and it was apparently strong enough that it got an unofficial endorsement from French Prime Minister Francois Hollande. This could be meaningful development, as heads of major European states have to this point been reluctant to acknowledge Greek concessions. It is a step towards the “political dialogue” Tsipras has been pleading for (framing the debate less in adversarial terms between debtor and creditor, and more as a mutual compromise between equal partners working towards a common goal).

“Democracy in Recession”

If Greece were to leave the EU, (aside from the economic impact) there would be significant geopolitical repercussions, including a Greek pivot towards Russia. The Greek government has already signaled it disagrees with EU sanctions on Russia. More recently, it was reported that Putin and Tsipras “did not discuss financial aid” on the sidelines of the St. Peteresburg International Economic Forum. Generally speaking, whenever someone has to defend that something “wasn’t discussed”, it means it either was discussed or very likely will be in the future.

This is not to say that Greece would stop being functioning as a democracy if it leaves the EU. In fact, it is a strong belief in democratic ideals that underpin the current standoff between Greece and it’s creditors. But a fracturing of the EU would certainly be a blow to the ideals the EU stands for–peace and prosperity through a cooperative, democratic international system. Specifically, if Greece signed a natural gas pipeline deal with Russia, it would undermine the current sanctions regime against Russia.

Even more alarmingly, Greece’s problems are emblematic of a greater inward shift by major democratic powers:

A recent NATO Poll found that “At least half of Germans, French and Italians say their country should not use military force to defend a NATO ally if attacked by Russia,” the Pew Research Center said it found in its survey, which is based on interviews in 10 nations.

In the United States, the study notes, support for NATO remains fairly strong. Americans and Canadians, it says, were the only nationalities surveyed in which more than half of those polled believed that their country should take military action if Russia attacked a NATO ally.

This is further evidence of a worrying global trend, what Thomas Friedman calls Democracy in recession”:

“…perhaps the most worrisome dimension of the democratic recession has been the decline of democratic efficacy, energy, and self-confidence” in America and the West at large. After years of hyperpolarization, deadlock and corruption through campaign financing, the world’s leading democracy is increasingly dysfunctional, with government shutdowns and the inability to pass something as basic as a budget. “The world takes note of all this,” says Diamond. “Authoritarian state media gleefully publicize these travails of American democracy in order to discredit democracy in general and immunize authoritarian rule against U.S. pressure.”

Diamond urges democrats not to lose faith. Democracy, as Churchill noted, is still the worst form of government — except for all the others. And it still fires the imagination of people like no other system. But that will only stay true if the big democracies maintain a model worth following. I wish that were not so much in question today.

Look, I get it. The world is still emerging from a generational economic crisis. Democracies are first and foremost accountable to their electorates, and in the face of short-term problems it is difficult to sell the importance of dealing with seemingly longer-term issues. But this is what we should demand of our political leaders–the ability to meet peoples short term needs while simultaneously laying the groundwork for long-term peace and prosperity.

The Democratization Process

Modernization theory and recent history support the idea that sustained democratic movements must result from organic desire by local factions. When these natural movements towards democratic governance emerge, they must be nurtured.

Democratic movements are always opposed by those who stand to lose power should they succeed. If the primary champions of democracy (the U.S. and the E.U.) seem increasingly unwilling to provide the resources needed to defend those who share our values, democratic movements are less likely to take shape against adversaries that tend to have economic and military advantages.

Autocratic rulers have always used propoganda and media control to make democracy look less appealing. This job becomes easier when traditional democratic stalwarts appear unable to govern effectively at home, and unwilling to defend their ideals abroad.


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Greece, Birthplace of Democracy, Needs A Democratic Lifeline

No More Blood From A Greek Stone:

It appears Greece’s government has come up with a list of reforms it and its creditors can agree upon in return for 4 months of bridge financing to restructure the conditions of a longer-term growth strategy.

By trading structural reforms for fiscal space, each major player (Greece and Germany) is making major concessions in the name of pragmatism. Germany is relaxing its dogmatic belief  in fiscal targets to provide the Greek government with the fiscal space needed to restructure its economy without exacerbating its “humanitarian crisis”. Greece, in return, must officially bring to an end the era of lax tax collection and over-rigidity in the labor market.

Both sides are making major concessions, neither side is 100% happy, and its appears as if middle ground has been found–all signs of a meaningful compromise. One can only hope that when Greece’s list of reforms comes in on Monday, both sides of this debate remain on the same page:

Greece’s list of reforms to be submitted to the euro zone on Monday comprises pledges on structural issues such as tax evasion and corruption over the next four months without specific targets, a government official said on Saturday.

The accord requires Greece to submit by Monday a letter to the Eurogroup listing all the policy measures it plans to take during the remainder of the bailout period.

If the European Commission, the European Central Bank and the International Monetary Fund are satisfied, the Eurogroup is likely to endorse the list in a teleconference without the need for a formal meeting. Then euro zone member states will need to ratify the extension, where necessary through their parliaments.

There will not be specific figures or targets to be achieved tied to the goals, the official said, adding that the two sides had not yet discussed how Greece would be evaluated on the reforms.

EU officials and euro zone ministers said they had no reason to think Greece would not come up with a satisfactory list of measures on Monday night. However, some hawkish countries have insisted that if there are doubts, the Eurogroup would have to reconvene in Brussels.

Structural reforms are inherently difficult to implement. In order to make the difficult task of taking on strong interest groups politically possible, an overwhelming popular mandate is needed. The need for strong public backing becomes even more important during times of high unemployment, when those lucky enough to remain employed are (quite rationally) more afraid of losing their jobs.

According to a recent opinion poll, 68% of Greeks want a “fair compromise” with the EU; even after years of economic suffering, the vast majority of Greeks remain steadfast in their believe in the E.U.. Such support must be seized upon, it will not last forever.

What Greece needs now is a pro-growth, structural reform based bailout plan, not a continuation of its failed blood-from-a-stone internal-devaluation based “recovery”. Reducing it’s primary surplus while collecting greater tax receipts would open up the fiscal space Greece needs to both deal with its humanitarian crisis and create a safety-net for those adversely affected by labor market reforms as the economy readjusts. 

The past 6 years have had a deep psycho-economic effect on the Greek people. With overall unemployment at 26% and youth unemployment at 50%, to go along with a 24% contraction in GDP, the Greek economy has been ravaged. Lack of control over monetary policy (as all members of the Eurozone face) has limited Greece’s policy space, it must be allowed to regain some control over fiscal policy.

Greeks have suffered enough and have learned their lessons–these next four months are an opportunity to prove it. In addition to any external monitoring imposed as part of this deal, the Greek people must prove they can be their own corruption watchdog and can pay their taxes.

Fighting wealthy tax evaders may be a popular political platform and merited on social justice grounds, but in order to pay-down Greek debt without compromising human development, a widespread cultural acceptance towards paying taxes is required. There is no doubt Greece has been too lax in collecting taxes in the past, but this does not need to be an irrevocable problem. Through legislative reform and social accountability, Greece can overcome it’s culture of tax evasion.

Locking in long-term labor market reforms, without driving more people into poverty and exacerbating the “lost generation” of young Greeks, should be the mutual goal between Greece and it’s creditors. In fact, this could be a potential blueprint for other economically depressed European countries to renegotiate their social contracts with the EU. Democratic governance derives its legitimacy from the will of the governed; if peoples basic needs are not met, democratic governance cannot be sustained.

Greece is not in the clear yet. But by finding this acceptable middle ground, the foundations of a sustainable solution for keeping the Eurozone intact may have been laid.

Reversing the Democratic Recession:

Neither side of this debate should have to pretend that keeping the Eurozone unified is an unimportant political, economic, foreign relations and security consideration. Greece staying in the E.U. is important for Greece, Germany, the E.U. and any country with aspirations of democratic governance:

[Stamford University democracy expert] Diamond adds, “perhaps the most worrisome dimension of the democratic recession has been the decline of democratic efficacy, energy, and self-confidence” in America and the West at large. After years of hyperpolarization, deadlock and corruption through campaign financing, the world’s leading democracy is increasingly dysfunctional, with government shutdowns and the inability to pass something as basic as a budget. “The world takes note of all this,” says Diamond. “Authoritarian state media gleefully publicize these travails of American democracy in order to discredit democracy in general and immunize authoritarian rule against U.S. pressure.”

If anything, the U.S. has been the poster-child for prosperity through democracy compared to the E.U.. Regardless, twin “democratic recessions” of varying degrees on both sides of the Atlantic have compromised the appeal of democratic governance abroad. Spreading Islamophobia, antisemitism, and xenophobia throughout Europe–side effects of Europe’s failed economic policies–compromise the appeal of Western values and galvanize authoritarian and extremist messages. 

ISIS finds itself at Italy’s back-door geographically in Libya. But ideologically, ISIS could not be further away from European ideals. Ultimately, reversing the democratic recession and countering authoritarian and extremist ideals requires. among other things, proving democracy remains a viable path to widespread freedom and prosperity.

“Western” countries cannot push Greece towards China / Russia for a bailout. We, like Greece, finds ourselves at an inflection point–we must  prove that democracy in a first world country can satisfy peoples basic needs. Failure to do so could lead to a long-term setback in promoting modernization, human rights, and democratic governance in the worlds least developed countries.


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Conflict Watch: The End of Team America World Police (Part 7)

Obama’s Strategic Plan For National Security:

The latest installment of my ongoing series “The End of Team America, World Police” focuses on President Obama’s second and final National Security Strategy (full document can be found here):

“The question is never whether America should lead, but how we should lead,” Mr. Obama writes in an introduction to the document, a report that seems to mix legacy with strategy. In taking on terrorists, he argues that the United States should avoid the deployment of large ground forces like those sent more than a decade ago to Iraq and Afghanistan. In spreading democratic values, he says, America should fight corruption and reach out to young people.

“On all these fronts, America leads from a position of strength,” he writes. “But this does not mean we can or should attempt to dictate the trajectory of all unfolding events around the world. As powerful as we are and will remain, our resources and influence are not infinite. And in a complex world, many of the security problems we face do not lend themselves to quick and easy fixes.”

“There is this line of criticism that we are not leading, and it makes no sense,” said Benjamin J. Rhodes, a deputy national security adviser. “Who built the effort against ISIL? Who organized the sanctions on Russia? Who put together the international approach on Ebola?”

The strategy lists eight top strategic risks to the United States, starting with a catastrophic attack at home but including threats like climate change, disruptions in the energy market and significant problems caused by weak or failing states.

Regardless of your opinion on how effectively the Obama administration has handled foreign affairs, it is hard to argue the United States is not leading from the front on major global issues. Yet it is important that our future leaders recognize, as President Obama has, the limits of both our government’s resources and our ability to sustain democratic revolutions through unilateral military intervention.

In a highly interconnected world, confronting global problems is in America’s economic and security interests (not to mention ethical considerations). This does not mean, however, that we should rush headlong into battle without carefully considering the probability of success and costs of alternative courses of action. There are other tools in America’s foreign policy toolkit–the other components of the D.I.M.E (diplomatic, intelligence, military, economic) framework–which should be considered before sending our military (and particularly ground troops) to war.

Military interventions are never quick, easy, or cheap. Even when successful, they leave a power void that must be carefully managed, lest that void be filled by ineffective leaders or extremist groups (or, as is often the case, both). When mismanaged, even the most well intended interventions can be counter-productive, fueling anti-Western propaganda and empowering the very ideologies we seek to destroy.

American tax dollars are a precious resource. Every dollar we spend abroad is a dollar we cannot use for nation building at home. The American government is solely responsible for managing America’s domestic affairs, but we have many allies who share the same ideologies and interests as us (and who should therefore more proportionately shoulder the cost of defending them).

A NATO By Any Other Name…:

NATO was established in recognition that global security was part of the “global commons” (and remains even more-so today). This brings us to recent comments on NATO’s future by outgoing Secretary of Defense Chuck Hagel:

Hagel, making his final appearance at NATO as U.S. defense chief, said the alliance faced several challenges, including violent extremism on its southern rim, Russian aggression in Ukraine and training security forces in Afghanistan.

“I am very concerned by the suggestion that this alliance can choose to focus on only one of these areas as our top priority,” Hagel told a news conference. “And I worry about the potential for division between our northern and southern allies.”

“The alliance’s ability to meet all these challenges at once, to the east, to the south and out-of-area, is NATO’s charge for the future,” Hagel said.

“This is a time for unity, shared purpose and wise, long-term investments across the spectrum of military capability,” he added. “We must address all the challenges to this alliance, all together and all at once.”

Often times, one can speak most candidly when their tenure at a position is coming to an end. Those who oppose the ideals of NATO will not coordinate their attacks one at a time. In fact, knowledge that NATO resources are strained (due to say, simultaneous humanitarian crises, a wear weary American public, or underinvestment in the global security commons by the rest of the international community) is only likely to embolden our enemies. While NATO needs to be able to effectively counter more than one major threat at a time, this does not mean the American army alone needs that capacity.

As the world becomes “smaller”, the exclusively Northern Atlantic nature of NATO should be reconsidered. Two major democracies–India and Japan–are not members of NATO, limiting the groups ability to fulfill its goals. Furthermore, having regional actors involved in security operations helps builds legitimacy, underscoring the strategic importance of greater Indian and Japanese involvement.

President’s Obama and Modi recently met and discussed, among other things, defense cooperation. India must become a major partner in promoting peace and democracy in the Middle-East (particularly in coordinating the fights against the Afghan and Pakistani Taliban) even as it itself modernizes.

More Turkey Please:

An Op-Ed published in the NYT today by two Arab professors teaching at American Universities was very supportive of Turkey’s level of involvement in the Middle East:

There have been sharp disagreements over the 2013 coup in Egypt, the Israeli-Palestinian conflict and the need for intervention in Syria. Turkey’s critics have called into question its reliability as a NATO ally, including in the fight against the radical Wahhabi group known as the Islamic State.

But much of this concern is misguided. The ongoing crises in the Middle East have only underscored Turkey’s pivotal geostrategic position: It’s no surprise that Pope Francis, President Vladimir V. Putin of Russia and Prime Minister David Cameron of Britain have visited Ankara in the past few months. And Turkey’s detractors, partly because they do not understand the sources of its new assertiveness, fail to see that its transformation actually serves America’s long-term interests.

The United States has long allowed client states like Saudi Arabia, the United Arab Emirates and Israel to pursue shortsighted goals in the Middle East. This has only brought despotism and strife. Washington’s failure to fully support the democratic government of Mohamed Morsi and his Muslim Brotherhood in Egypt contributed to its collapse, and so to the instability and violence that have occurred there since. And it was President Obama’s cynical abandonment of the Syrian opposition during the first two years of the uprising against Mr. Assad that set the stage for the advent of the Islamic State.

To avoid any more such calamities, policy makers in Washington, and other Western capitals, should abandon their counterproductive approach: They should embrace Turkey’s growing, and positive, engagement in the Middle East.

I could not agree more.

But I do not think America’s leaders are opposed to Turkey asserting itself in the Middle-East. Indeed, as a primarily Muslim democracy and NATO member, it must play a large role in Obama’s plan of relying more heavily on regional partners in curtailing Islamic extremism.

I agree the Obama administration was wrong on Syria and Egypt, I am on the record saying as much. But in this case, two wrongs don’t make a right. Turkey cannot afford to play the moral high ground on these issues while the dogs of war bark at it’s door-step. Furthermore, Erdogan’s delayed and half-hearted support of the Kurdish peshmerga reeks of political calculus, not someone who considers ISIS a serious threat to regional stability.

So I am not exactly sure what these professors are talking about–they appear to be building a straw-man just to knock him down. I think it is pretty clear the Obama administration wants more Turkish involvement, including ground forces, in the fights against Assad and ISIS, not less.

Japan and Germany (Finally) Begin to Shed Their Post-WWII Identities:

Updating a previous blog about Japan and Germany shedding their post-WWII pacifist identities, Prime Minister Shinzo Abe is pushing Japan to change it’s pacifist Constitution:

Prime Minister Shinzo Abe has said that he wants to start the process of revising Japan’s Constitution as early as next year, a senior lawmaker in his party said Thursday, giving the clearest indication yet that the Japanese leader will seek to change a document that has undergirded the country’s postwar pacifism.

Mr. Abe told Hajime Funada, the leader of a group of Liberal Democratic Party lawmakers, on Wednesday that the best time to begin the difficult political task of amending the Constitution would be after elections for the upper house of Parliament, scheduled for the summer of 2016…

The Constitution, which also prohibits Japan from possessing the means of war, was written by American occupiers after World War II to prevent the defeated nation from ever again engaging in militarist expansion. The document proved so popular among Japan’s war-weary people that it has never been amended.

But Mr. Abe has seized on the murders of the Japanese hostages to make some of his strongest appeals yet for unshackling the nation’s military. Saying Japan was unable to save the hostages, he has called for easing restrictions on its purely defensive armed forces to allow them to conduct rescue missions, evacuations and other overseas operations to protect Japanese nationals.

The hostages, Kenji Goto, a journalist, and Haruna Yukawa, an adventurer, were beheaded a week apart by the Islamic State, a militant group in Syria and Iraq that had demanded a $200 million ransom for their release. The murders outraged and sickened Japan, which had seen itself as largely immune to the sort of violence faced by the United States and other nations that have been involved militarily in the Middle East. Since 1945, Japan has adhered to a peaceful brand of diplomacy that has seen it become a major donor of economic and humanitarian aid to the Middle East and elsewhere.

It remains unclear whether the shock of the killings will swing the Japanese public in favor of Mr. Abe’s harder line. Since the murders, opposition politicians have stepped up attacks on the prime minister, accusing him of provoking the Islamic State by allying Japan more closely with the United States-led efforts to destroy the militant group. Just days before the ransom demand appeared, Mr. Abe pledged $200 million in nonmilitary aid to countries in the region confronting the Islamic State.

However, on Thursday, the lower house of Parliament unanimously adopted a resolution condemning the killings and calling for increased coordination with the global community to combat terrorism.

Germany to Play a More Active Role in Global Security?:

Germany must ramp up defense spending starting in 2016 to ensure its military is able to take on a bigger role in crisis zones, according to two top lawmakers in Chancellor Angela Merkel’s coalition.

Germany spends about 1.3 percent of gross domestic product on the military, short of the 2 percent level pledged informally by North Atlantic Treaty Organization allies.

Merkel’s spokesman has said no additional funding will come in the short term as the government struggles to hold on to its target of balancing the budget next year and with 2015 spending already largely negotiated.

Germany must engage in international missions “earlier, more decisively and more substantially,” Gauck told the Munich Security Conference on Jan. 31.

Fiscal responsibility is usually good, but like anything, overzealous attachment to an ideology can preclude pragmatic policy. Economics is context sensitive, and in the current context, Germany’s dedication to running a balanced budget has left holes in the Eurozone economy and the global security commons.

A large scale increase in German defense spending would bolster global security efforts (particularly in countering Russian aggression in former Soviet Republics), while simultaneously providing a partial answer to Europe’s economic stagnation (by “buying European“).

Please do not confuse my views with war-mongering or advocating for the military-industrial complex, I just recognize that there are bad actors in the world who only understand realpolitik. In order to provide room for the forces of human dignity and freedom to flourish, these bad actors must be marginalized.


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Economic Outlook: Europe (Finally) Gets It’s Stimulus Program

Youth Unemployment Europe October 2013

After EU Parliamentary elections in late May, many people were concerned (or jubilant, depending on the circles you run in) about gains by anti-EU “Euroskeptic” parties. These parties did not gain enough seats to dictate policy, but they did gain a platform to push their agenda in future policy decisions.

For every action, their is a reaction. It seems that gains from anti-EU parties have refocused pro-European forces, forcing them to adopt more “people-friendly” policies to counter the depression level unemployment rates (which have hit young people particularly hard).

As any development economist will tell you, youth unemployment presents many unique problems, both individual (high depression rates, future income losses “wage scaring”) and societal (increases in criminal / anti social behavior, drags on economic growth).

Systematic under-investment in young people is short sighted economically and causes untold human suffering. Such under-investment, while always reprehensible, is not surprising in the worlds least developed countries (LDCs), but this is Europe we’re talking about here.

Europe’s leaders have responded with pragmatic policies in recent months (finally, it only took 5+ years!). In Early June, the European Central Bank took the unprecedented step of introducing negative interest rates for keeping deposits in the ECB, a policy likely to not be popular with people who have wealth to invest, but which nonetheless should help spark short-term economic growth.

In arguably more meaningful news, last week the European Parliament announced a “Public-Private” stimulus program:

Jean-Claude Juncker won a wide endorsement from the European Parliament on Tuesday to be the next head of the executive European Commission after setting out a “grand coalition” investment programme to help revive Europe’s economy.

Belying his reputation as a grey back-room fixer, Juncker spoke with passion of his ambition to “reindustrialise” Europe and put the European Union’s 25 million unemployed, many of them young, back into work.

He promised a 300-billion-euro ($409-billion) public-private investment programme over the next three years, combining existing and perhaps augmented resources from the EU budget and the European Investment Bank with private sector funds, to build energy, transport and broadband networks and industry clusters.

“We need a reindustrialisation of Europe,” the 59-year-old former Luxembourg prime minister said. He won support from the Socialists and Liberals as well as his own centre-right bloc, the largest in the EU legislature.

Juncker acknowledged many Europeans had lost confidence in the EU and said only economic results and full employment, not endless debate over EU institutions, would restore their trust.

…his emphasis on public investment, reaffirmation of a target of raising industry to 20 percent of EU economic output and call for a minimum wage in each EU country, were designed to appeal to the left.

In a speech delivered in French, German and English, Juncker sought to reassure Germany and other north European fiscal hawks that the 28-nation bloc’s strict rules on budget deficits and debt reduction would be maintained.

Juncker said euro zone countries should get financial incentives if they make ambitious structural economic reforms, funded by the creation of a separate budget for the 18 countries in the currency area.

He also vowed to protect public services in Europe from what he called “the whims of the age” – an apparent reference to privatisation and restrictions on state aid.

Europe’s stimulus act will not be a panacea. By all accounts, EU countries (with the exception of Germany) have recovered much more slowly from The Great Recession than the U.S. Unemployment remains too high, and is especially troubling in certain countries and demographics.

Compounding the problem, this stimulus budget is too small to adequately address the problems facing the EU. The American Reinvestment and Recovery Act (ARRA) was less effective than imagined largely because it wasn’t big enough, and it’s funds came in at almost twice as much as its European Counterpart ($831 billion vs. $490 billion).

However, only 2/3 of the ARRA was in the form of spending, while the remainder took the form of tax breaks (which, in the context in which it was passed, had a much lower “fiscal multiplier” than direct spending). The European program seems to be more spending focused, meaning dollar for dollar (or euro for euro) this smaller stimulus plan may go further in addressing the social and economic problems facing the EU. The EU plan also leverages public funds to stimulate private investment–Europe’s leaders are doing what they can given budgetary constraints barring a larger stimulus program.

Combined with the ECB’s negative interest rates, EU leadership is proving it has moved past “bleeding the patient” and is taking a more proactive approach to economic recovery. I know it is hard to get excited about European leadership learning lessons after 5+ years of policy failure, but better incomplete and late than never, right?

While generally well received, this program has its notable detractors, headed by “Euroskeptics”, fiscal hawks, and Britain. Britain and other non-Euro EU countries must make their own decisions about their future in the EU based on what they believe is in their country’s best interests. As French President Hollande said last year, “I can understand that others don’t want to join (the single currency). But they cannot stop the euro zone from advancing.”

Sometimes you have to cut off the limb to save the patient. For the euro zone to survive, closer fiscal, taxation, and regulatory integration are needed. If Britain or any other country cannot accept this reality, they must seriously questions their future position within the EU (which, it seems, Britain will do with a membership referendum next year).

Leaving the EU need not be marked with retaliatory economic barriers or deteriorating political relationships; it could be done in a way that largely preserves existing interdependence while opening avenues for greater policy flexibility. As no country has ever left the EU, the punitive impacts of such a move are undecided. Like any breakup, it could be ugly and painful, or it could be clean and leave the possibility of “remaining friends”. 

 


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Economic Outlook: Why Economics Failed (EU Edition)

Special thanks to Dr. Darryl McLeod for the graph!

The Importance of A Strong EU:

In 2012, The European Union won the Nobel Peace Prize, a symbolic award mean to show appreciation for the global importance of a unified European in the midst of the continents  most serious economic downturn since WWII:

The European Union‘s three presidents have collected the Nobel peace prize in Oslo in recognition of six decades of work promoting “peace and reconciliation, democracy and human rights”.

David Cameron was one of six EU leaders who decided not to attend. But his deputy, Nick Clegg, was there to represent the UK at the Nobel Institute.

Attendees heard the Nobel committee president, Thorbjoern Jagland, praise the EU’s role in transforming a European “continent of war” into a “continent of peace”.

“That should not be taken for granted – we have to struggle for it every day,” he said.

European commission president, José Manuel Barroso, said: “This is an award for the European project – for the people and the institutions – that day after day, for the last 60 years, have built a new Europe. “We will honour this prize and we will preserve what has been achieved. It is in the common interest of our citizens. And it will allow Europe to contribute in shaping that ‘better organised world’ in line with the values of freedom, democracy, human rights and rule of law that we cherish and believe in.

Indeed, I have advocated for a stronger role for Europe in ensuring global security, promoting democracy, human rights and rule of law throughout my “End of Team America World Police” series. Europe has to play a greater role in security both for budgetary and practicality reasons; it is much closer to Africa and the Middle East, the U.S. public is war weary, and we cannot have groups such as Boko Haram, ISIS (Islamic State of Iraq and Syria), and the Yemen-based Al Qaeda in the Arabian Peninsula thinking they can act with impunity (or join forces).

The EU is currently holding parliamentary elections, and anti-EU parties expect to gain seats:

These far-right and far-left groups will not win anything approaching enough seats to take control. But they could get around a quarter of them, amplifying their voice in debate and giving them more opportunities to slow down measures that the Brussels bureaucracy and international economists say could help save Europe from a Japan-style “lost decade” of anemic growth and policy stasis.

These include initiatives to bind the 18 countries that use euro currency closer together and open up Europe’s markets to greater competition, including from the United States.

Set up in the 1950s as a common assembly to introduce an element of democracy into the nascent European project, the parliament became directly elected in 1979 as part of push to narrow the chasm between Europeans and the arcane work of integrating their economies that few ordinary people cared about and even fewer could understand.

This anti-EU sentiment, while expected during times of economic downturn, is actually counter-effective. The issue holding back the EU recovery is insufficient integration; and this is not news. Since well before the existence of the Euro, economists have known that while some factors favored the chances of Eurozone success (such as geographic proximity and high level of trade, what is sometimes known as the gravity theory of international trade), others factors raised red flags (lack of fiscal integration, cultural and language differences which hold back the flow of residents from high unemployment to low unemployment areas).

The U.S. is an optimal currency union; everyone speaks English, and can move about the country fairly easily. Furthermore, we have the worlds largest Federal Government and most powerful National Bank anchoring the economy. As bad as the Great Recession was in America, it was irrefutably worse in Europe (and not because of their generous social welfare systems, because of the lack of fiscal integration).

And now the anti-EU sentiments are hunkering down for the zombie apocalypse, instead of fostering the closer bonds (both fiscal and cultural) needed to return the EU to a position of global leadership and prosperity. A strong unified Europe is important both for the European Economy and global security and development, hopefully whoever wins seats in the EU Parliamentary Election understands this.

Why Economics Failed:

This anti-intellectual refute of economic theory reminds me of a recent Paul Krugman Op-Ed, “Why Economics Failed”:

On Wednesday, I wrapped up the class I’ve been teaching all semester: “The Great Recession: Causes and Consequences.” (Slides for the lectures are available via my blog.) And while teaching the course was fun, I found myself turning at the end to an agonizing question: Why, at the moment it was most needed and could have done the most good, did economics fail?

I don’t mean that economics was useless to policy makers. On the contrary, the discipline has had a lot to offer. While it’s true that few economists saw the crisis coming — mainly, I’d argue, because few realized how fragile our deregulated financial system had become, and how vulnerable debt-burdened families were to a plunge in housing prices — the clean little secret of recent years is that, since the fall of Lehman Brothers, basic textbook macroeconomics has performed very well.

But policy makers and politicians have ignored both the textbooks and the lessons of history. And the result has been a vast economic and human catastrophe, with trillions of dollars of productive potential squandered and millions of families placed in dire straits for no good reason.

Essentially, economics didn’t fail, policy-makers failed ECON 101. Any economist worth a damn understands that economics is always “context-sensitive”. Appropriate economic policies are different during “good times” and economic downturns; economic policy should be “counter-cyclical”, saving up during good times to pay for essential safety net and stimulus programs out of a surplus in bad times. Instead we had the Bush Administration give tax breaks during good times, part of a much larger misguided concept of “starve-the-beast” economic policy.

Of course one could argue most policymakers are aware of the economics and just beholden to vested interests, in which case I would say your probably right more often than not.

And amazingly, across the pond. a parallel dismissal of textbook economics is also playing out in Europe. Instead of pursuing closer fiscal and cultural integration, the EU seem to be drifting apart.

Economics: Art or Science?

I have always believed that Economics is more “art” than “science”, particularly when it comes to responding to crises. In such instances, policy responses have to be made before robust economic analyses can be conducted; policy makers have to rely on intuition and historic lessons, alongside economic theory and context.

But it is not scientific deficit which has led economics to “fail” in recent history. From dogmatic misinterpretation of Adam Smiths “Invisible Hand” (only in the presence of proper safeguards and regulations), to the inflationary / rising borrowing cost effects of fiscal expansion (not in a liquidity trap), to the benefits of currency unions (but only under certain conditions, as explained above), it has been an inability / unwillingness by “conservative” factions on both sides of the Atlantic to grasp the conditions in which certain economic theories operate. As an economist, the solutions to the short-term problems facing advanced economies are frustratingly obvious.

Sometimes I think the only solution is teach everyone economics and political science once in middle school and again in high school. In a functioning democracy people set the agenda, does it not make sense invest in an informed (and therefore more engaged) citizenry?

America the Anecdotal:

America has indeed become the anecdotal nation. We do not have to be, it is a collective conscious choice we have made (or a series of choices we choose not to make). It seems Europe has become anecdotal as well.

Maybe it is part of a concerted effort by fast food chains and entertainment conglomerates to brainwash…No–we cannot blame conspiracies. Sure, vested interests will do all they can to maintain power imbalances, but is this really an excuse, or have the people who live in the world’s most modernized, democratic societies just become lazy and complacent?

I leave my readers with a quote from Matt Taibbi’s best seller “Griftopia”, “America is no longer a country that cares about experts. In fact, it hates experts. If you can’t fit a story into the culture-war storyline in ten seconds or less, it dies. (2 Taibbi references in blogs this week; you go Matt!)

It takes a bit more civic responsibility to build egalitarian, progressive societies; I for one think it’s worth the effort.    


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Green News: US-EU Free Trade Agreement–Putting the Cart Before The Horse


Negative Externality

Original article:

Officials familiar with the EU’s proposal have told Reuters the European Union will offer to lift 96 percent of existing import tariffs, retaining protection for just a few sensitive products such as beef, poultry and pork.

“This is just the first step, but it sends a message that no sector will be completely shielded from liberalization,” said one person involved in preparing the EU offer. The official declined to be named because of the sensitive nature of the talks. Two other European officials confirmed the offer.

Tariffs between the United States and the European Union are already low, and both sides see greater economic benefits of a transatlantic accord coming from dropping barriers to business.

The United States and the European Union are seeking to seal a trade deal encompassing half the world’s economic output, hoping it can bring economic gains of around $100 billion dollars a year for both sides.

All moves to lower the cost of trade are seen as beneficial for companies, particularly automakers such as Ford, General Motors and Volkswagen, with U.S. and European plants.

EU cars imported into the United States are charged a 2 percent duty, while the EU sets a 10 percent duty on U.S. cars. Including even higher duties for trucks and commercial vans, the burden for automakers amounts to about $1 billion every year.

I have generally been supportive of the US-EU Free Trade Agreement. Two large developed economic blocs dedicated to human rights principles should be able to draft a reciprocal FTA without the adverse human rights implications of the Trans-Pacific Partnership Agreement (TPP) (whether they will remains to be seen).

However, another concern comes to mind. It is a concern that is inherent to all free trade agreements, but more-so the further the geographical distance between partners. I am talking about emissions released from the transportation of goods. In the absence of a global carbon pricing mechanism, environmental concerns are likely to take a backseat to immediate economic interests.

Trade agreements result in increased emissions from the shipment of goods. The purpose of any FTA is to increase the flow of goods by lowering the cost of doing business between partners. Emissions from trading represent a “negative externality“–a cost to society not reflected in the market price of a good. In the absence of a carbon-tax, when the only considerations for transatlantic trade are comparative advantage and transactions costs, any U.S.-E.U. FTA will naturally result in greater emissions than “socially optimal”. Remember, the main purpose of a carbon tax is not to raise revenue, but to reduce carbon emitting activities in favor of more environmentally friendly substitutes.

The E.U. and U.S. “are seeking to seal a trade deal encompassing half the world’s economic output, hoping it can bring economic gains of around $100 billion dollars a year for both sides”; this economic gain should be subject to a carbon tax. An agreement encompassing half of the worlds output, between ideologically aligned partners, is an excellent opportunity to begin implementing new human rights and environmental norms. Failure to do so mainly serves large corporations (although partly consumers as well in the form of higher prices, depending on the elasticity of demand for a good), at the expense of vulnerable groups and future generations.

With all the political rhetoric about overcoming inequality and the costs of environmental degradation, and in light of the damaging effects of human rights violations on economic development and national / global security, it would be a grave mistake for the governments involved to continue to put GDP growth above all else. This outdated priority undermines other foreign policy and domestic goals the U.S. dedicates vast resources towards. 


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Conflict Watch: Will Western Powers Stand With the Ukrainian Opposition, Or Stand By As Democracy Flounders?

Ukrainian President Yanukovych withdrew from EU trade talks in favor of Russian support, sparking protests

Secretary of State John Kerry today reaffirmed the importance of U.S. and E.U. support for the Ukrainian Opposition at the Munich Security Conference:

Secretary of State John Kerry said on Saturday that the United States and European Union support the people of Ukraine in their pursuit of stronger ties with the West…’They have decided that means their futures do not have to lie with one country alone, and certainly not coerced. The United States and EU stand with the people of Ukraine in that fight.’

However, Ukrainian opposition leaders urged U.S. and EU leaders on Friday to go beyond vocal support for their fight and demand a halt to violence they blame on Yanukovich.

“What we need is not just declarations but a very clear action plan – how to fix the problem and fix the violence, how to investigate all these killings and abductions and tortures,” protest leader Arseniy Yatsenyuk said.

The uncompromising standoff, which turned violent after Yanukovich passed a short-lived law barring protests in early January, prompted a rare intervention from the military on Friday.

NATO Secretary General Anders Fogh Rasmussen said Friday in a statement on Twitter that he was “very concerned by attempts to involve the military in the crisis” and added that the “military must remain neutral,” but said he was encouraged by the eventual repeal of the anti-protest law.

Russian Foreign Minister Sergei Lavrov on Saturday accused EU leaders of interfering in Ukraine’s internal affairs, helping stoke violent anti-government protests and displaying double standards.

“What does incitement of increasingly violent street protests have to do with promoting democracy?” Lavrov said in response to European Council President Herman Van Rompuy, who earlier said Ukraine’s future lay in Europe.

The EU and Russia have been at loggerheads over Ukraine since Yanukovich ditched an EU association accord in November under pressure from a Moscow seen to be trying to bring its former Soviet satellite back into its sphere of influence.

Speaking to Al Jazeera from Munich on Saturday, Leonid Kozhara, the Ukrainian foreign minister, called on Ukranians to distance themselves from the opposition, saying there was a “big misunderstanding between the government and the opposition.”

“For the first time in our country, we can see extremist groups,” he said.

Excuse us Minister Lavrov if I scoff at democracy lessons from the Russian Foreign minister…

The Ukrainian opposition is correct, they need more than words to support their movement towards more effective democratic governance. They need capacity building and organizational support from established democratic governments. Most importantly, they need economic support.

There are already disturbing trends emerging from these protests, namely military intervention and the introduction of an extremist narrative. The world has seen what happens when Western Powers “stand with” democratic movements (but really just stand by and offer little but supportive words). Over time, legitimate grievances and moderate oppositions are overrun by opportunistic extremist forces–the extremist narrative becomes self-fulfilling if a democratic movement is not nurtured. We have seen this sequence of events play out in Syria and Egypt in recent years; do not think because of Ukraine’s geography the opposition is less susceptible to anti-Western forces.

It is important to understand that those opposing democratic movements will not sit back and do nothing. While Russia may be less wealthy than the U.S. or the E.U., its political structure allows it more autonomy in foreign affairs. Despite pressing domestic needs, the Kremlin has proven willing to support to the Ukrainian government (in the form of a $15 billion loan, although this loan was recently suspended due to the inability of Yanukavych to squash his opponents).

Recognizing authoritarian regimes are not accountable when it comes to spending, Western powers must be more pragmatic and timely in their support. In conflict resolution, the thinking used to be solidify economic reforms, then focus on political reforms; history has proven this approach to be ineffectual.

Economic gains from democratization tend to be long term–innovation takes time. Demanding immediate economic reform in return for political support can undermine a budding democratic movement. If things get worse off right away (due to economic reforms), a new democratic regime may lose popular support (think the IMF demanding painful subsidy cuts as a condition for supporting the Morsi regime).

The only condition for economically supporting a democratic movement should be a commitment to pluralistic, inclusive democracy and human rights. Failing to support the Ukrainian opposition in this way means the champions of democracy are not learning from past failures. Furthermore, continued Western inaction could inadvertently undermine future democratic movements. Why would people who desire democratic freedoms risk reprisal if they have do not believe they will receive external support? While democratic freedoms are important, rational people will not oppose their government if they do not believe they have a legitimate chance of seeing their goals achieved.

Update: EU ready with “substantial financial aid” one Ukraine sets up its new government, following the ouster of Yanukovych.


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Transparency Report: The UK, Kazakhstan, Domestic and Extra-Territorial Human Rights Obligations

Original Article:

“British Prime Minister David Cameron helped inaugurate the world’s costliest oil project in Kazakhstan on Sunday on a trip aimed at sealing business deals but quickly beset by questions over the Central Asian nation’s poor human rights record.

Kazakhstan hopes Cameron’s visit, the first by a serving British prime minister, will cement its status as a rising economic power and confer a degree of the legitimacy from the West it has long sought.”

“With a $200 billion economy, the largest in Central Asia, and deep oil and gas reserves, Kazakhstan is a tempting target. Britain is already among the top three sources of foreign direct investment, according to Kazakh officials.

Since its 1991 independence, officials say British firms have invested about $20 billion in their economy, part of a total $170 billion ploughed into Kazakhstan since then.

But more high profile trade links carry political risks.

New York-based Human Rights Watch said Cameron had a duty to use his trip to denounce human rights abuses.

‘We are very concerned about the serious and deteriorating human rights situation there in recent years, including credible allegations of torture, the imprisonment of government critics, (and) tight controls over the media and freedom of expression and association,’ it said in a letter on Friday.

Answering questions from reporters in Atyrau on Sunday, Cameron said he never put trade and business interests before rights.

‘We will raise all the issues, including human rights. That’s part of our dialogue and I’ll be signing a strategic partnership with Kazakhstan,’ he said.

‘Nothing is off the agenda, including human rights.’

“[Nursultan] Nazarbayev, a former Communist party apparatchik, has overseen market reforms and maintains wide popularity among the 17-million strong population, but has tolerated no dissent or opposition during his more than two decades in power.”

“Nazarbayev, a former steelworker who now holds the title “The Leader of the Nation”, says that he puts stability and rising living standards before hasty political changes in his steppe nation, the world’s ninth-largest by area and five times the size of France.

Comparing Kazakhstan to ‘Asian economic tigers’ like South Korea and Singapore, he has said he wants to turn it into ‘the economic snow leopard of Central Asia’

International human rights law places the state as the central and primary duty bearer for human rights obligations. Human rights include economic, social and cultural rights, in addition to political and civil rights. These rights are indivisible and interdependent, and must be upheld indiscriminately. Certain rights cannot be violated in the name of others—when Nazarbayev says he is putting economic and social progress ahead of political freedoms, he is failing to live up to international human rights law.

The reason behind this is that, without certain political and civil rights, developments are not sustainable. If standard of living gains are made at the benevolence of a dictator, these gains are unlikely to be made in an egalitarian way. Additionally, any gains made can easily be taken away in without any accountability or redress for society as a whole.

The state, however, is not the only actor accountable for the human rights implications of its actions. According to a recent publication, “Who Will Be Accountable”, released by the UN OHCHR and the CESR, “Under international human rights law, States are primarily accountable for respecting and protecting the rights of those within their jurisdiction. The proliferation of actors in international development—from business enterprises and multilateral economic institutions to private foundations—has made it necessary to develop a more multidimensional approach to accountability…However, the notion of shared responsibility has not led in practice to a clearer attribution of the respective and differentiated duties of each of the many actors in the development process. If all parties are responsible for achieving development goals, the risk is that no party can be held accountable for anything. (p 17-18)”

It certainly seems that nobody is willing to take responsibility for human rights violations in Kazahkstan—not the Kazakh government, not Cameron, not UK investors.

Cameron’s government has even been unresponsive to the UK and EU wide effects of austerity on human rights (the UK has been a strong supporter of austerity in the face of the Great Recession). Austerity programs have contributed to the prolonged economic slump in the UK (and the EU as a whole) that is some ways has been worse than even the Great Depression.

One would hope Cameron’s time spent as co-chair of the UN High Level Panel on the Post-2015 Development Agenda would make him more in-tune with the importance of human rights for conflict prevention, economic growth and sustainable human development. Even if it has, it is also clear that Mr. Cameron, as an elected official, has more short-term concerns to deal with.

I am curious to hear what my readers think. Do states and private investors really have extra-territorial human rights obligations? Is it possible for external parties to even affect a dictator’s policies? Can economic and social progress be achieved without political and civil rights? Is international human rights law too idealistic and not pragmatic enough to be realistically applicable?

There is no question that whenever large sums of money are involved, human rights implications will follow. A large investment in Kazakh oil fields will undoubtedly further entrench the rulers.  But if a government is unwilling to listen to even its citizens, will it listen to other world leaders and investors? Perhaps it will—as they say, “money talks”.

Is it realistic to expect UK actors, who greatly need new avenues for economic growth and are seemingly unresponsive to proximal human rights issues, will risk a “slam dunk” investment in order to champion human rights (especially when that demand would likely be rebuffed by an insulated authoritarian regime)?

The stability and security needed for long term investments to pay off seems to exist in Kazakhstan. Is this the extent to which international actors care about human rights issues, or does a greater moral and long-term sustainable human development imperative exist?  

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Economic Outlook: European Youth Unemployment, Public-Private Partnerships and the “Magic” of Fiscal Stimulus

Indepensible Taxing and Spending

Original Articles:

Reuters

“European leaders agreed on new steps to fight youth unemployment and promote lending to credit-starved small business on Thursday after deals on banking resolution and the long-term EU budget gave their summit a much needed lift.

The 27 leaders resolved to spend 6 billion euros over the next two years to support job creation, training and apprenticeships for young people, and to raid unspent EU budget funds to keep the effort going thereafter.

Critics say the money is a drop in the ocean with more than 19 million people unemployed in the EU, and more than half of all young people under 25 without a job in Spain and Greece.”

“Separately, negotiators for the European Parliament, the European Commission and EU member governments clinched a deal on a 960 billion euro ($1.25 trillion) seven-year budget for the bloc for the period 2014-20, ending months of squabbling.”

“The leaders unanimously endorsed the agreement, EU Council President Herman Van Rompuy said, overcoming a last minute snag over Britain’s rebate, which will remain intact. The European Parliament must approve the deal next month so the new budget can take effect next January.

The banking resolution agreement designed to shield European taxpayers from having to foot the bill for rescuing troubled banks will be implemented on a national basis from 2018.

It lays the ground for a single system to resolve failed banks in the euro zone and the 27-nation EU, the second stage of what policymakers call a European banking union, meant to strengthen supervision and stability of the financial sector.”

“Most of Europe has been either in recession or on the brink for the past three years, while unemployment has steadily risen. EU unemployment now stands at 11 percent, the highest since records began, with youth unemployment a particular problem, especially in Spain, Greece, Italy, Portugal and Cyprus.

The new EU fund will back a “youth employment initiative” that would offer people under 25 a promise of a job, training or apprenticeship within four months of leaving education or becoming unemployed.

Politicians and sociologists are worried that extended unemployment for young Europeans will lead to a “lost generation” that never gets fully incorporated into economic life, with deep psychological and financial implications.”

NYT

“The European Union may soon have a new budget — including the first cut to spending in its history — after a surprise breakthrough deal on Thursday.”

“The budget still needs final approval by the European Parliament, but that is looking more likely thanks to this agreement. The European Parliament president, Martin Schulz, called the deal “acceptable” and said he was optimistic that he would have a majority of Parliament members backing it at a vote next week.”

“Separate from national spending, the budget is designed in part to balance out the economic development of its members by giving funding to poorer countries. The European Union has funded thousands of infrastructure and capital projects over the years, from the installation of broadband networks to the upgrade of road networks.

The budget also includes items meant to generate economic growth, like research and development and a new, more accurate satellite navigation system. It also funds regulation and administration in such areas as mergers and competition, the review of national budgets to ensure they do not include excessive deficits, and banking supervision.

If the European Union fails to get a seven-year deal passed by Parliament before the end of the year, the bloc would have to revert to annual budgets, which would make long-term planning difficult.”

It seems as if the leaders of the European Union–much of which has been mired by historically high unemployment and stagnant growth / recession since 2008–are finally realizing that greater fiscal coordination is needed in order to sustain the Monetary Union.

While it is true that the 7 year, 960 billion euro budget proposal represents an austerity program, in reality coming to an agreement creates the certainty and stability needed for businesses to make long term decisions (and thereby stimulating the economy more as opposed to hoarding cash for instance). It also allows for targeted long term spending, as opposed to a year-by-year budget which would complicate meaningful long-term investments in human and physical capital.

By concentrating on lower income European countries, the European Union will be picking the “low hanging fruit”, realizing a greater return on investment as these countries grow at faster rates. As these countries fully modernize, social spending will go down and new markets will open up, stimulating aggregate demand in the European Union as a whole.

In countries where such “low hanging fruit” does not exist, more specialized growth-targeting projects will help Europe’s higher income countries stay competitive in cutting edge fields going forward.

The plan also sets aside funding for administrative expenses, which will be important in ensuring compliance and accountability from the financial industries / MNCs (which is itself an important aspect in correcting Europe’s fiscal outlook). Managing too-big-too-fail financial institutions and tax evasions / illicit financial flows will be the two most important regulatory steps the EU can take to hold the ultra-wealthy accountable for their role in the current economic crisis and help prevent future crises.

Targeting youth unemployment has particularly significant implications for sustainable growth in Europe. While it is true $ 6 billion is not a lot of money, I believe that this small “drop in the bucket” can have a large impact. The reason for this optimism is the ability to augment public spending through “public-private partnerships” (PPP).

Public-private partnerships are particularly suited for targeting youth unemployment. The private sector is uniquely positioned to give insight into exactly what skills young people will need for the jobs of today and tomorrow. The government is uniquely positioned to implement these programs into school curricula and unemployment conditions–targeting non-workers with skills needed to obtain jobs. The question is how much money can $6 billion in public investment leverage in private investment?

While there is no exact formula, at the ECOSOC Partnerships forum this past April, Mr. Chirstian Friis Bach, the Minister for Economic Development Coordination in Denmark, told the audience (including myself) how he was able to leverage over 500 million euros in private money from 40 million euros in public investment for various sustainable development initiatives. While the scale is not the same (40 million v. 6 billion initial public investment), this still suggests that leveraging a few hundred to a thousand percent in private funding is not an unrealistic expectation–especially considering the importance of Europe’s youth as a future employment pool / consumption engine, and evidence of large cash reserves held by MNCs.

As the yearly ECOSOC forum in Geneva kicks off July 1st, a golden opportunity presents itself to frame this youth-employment initiative as a large scale public-private partnership. If that $6 billion turns into $60 billion, suddenly that “drop in the ocean” represents a much more meaningful investment.

There is also the importance of proving to employers that the youth is ready and able to work. Employers may believe young people are unemployed because they are lazy or incompetent, leading to the passing over of an otherwise qualified younger person for an older more experienced worker–youth uneployment becomes a self-fulfilling prophecy. If the youth employment program can show that young people indeed posses the skills, passion, energy and innovative ideas needed to be productive workers, then young people will be able to shed the negative stigmas associated with unemployment.

As youth salaries and consumption increase aggregate demand, businesses will have to expand to meet that demand, creating even more jobs which would be more likely to be filled by younger candidates (an example of how the fiscal multiplier is currently >1, as public investment will not crowd out private investment but rather they are be mutually reinforcing).

The Great Recession has turned into a full blown economic Depression throughout much of Europe. To address this, fewer public funds must be channeled in a more concentrated way and supplemented by private funds. Governments bailed-out large private sector actors in the wake of the Great Recession because they understood the interdependence of people, government and the private sector. Now it is time for the private sector to return the favor by augmenting sustainable development initiatives.

To be clear, PPPs are not a call for charity–they represent mutually beneficial and sustainable economic arrangements. Businesses need future employees and customers, governments need non-dependent tax payers, and young people need jobs.